Mon. Jan 24th, 2022

Like their customers, big, established video game makers want to take a level. This makes them just as likely to pay too much for in-game purchases as players. Consider Take-Two, the $ 16 billion company behind car theft, the game that redefines the action-adventure genre. It pays $ 12.7 billion including debt to Zynga, a loss-making specialist in free-to-play mobile games such as Words With Friends and Zynga Poker.

The move is in line with the acquisition of mobile game studios by the likes of Activision Blizzard and Electronic Arts. But it’s still an expensive takeover. The cash and share offering of $ 9.86 per share represents a premium of 45 percent above Zynga’s undisturbed average share price for three months.

The transaction implies an enterprise value up to ebitda multiple of almost 20 times for Zynga, although it is among the 22 times Take-Two transactions. The $ 100 million in cost savings that Take-Two predicts, valued at about $ 840 million taxed and capitalized, is barely starting to cover the premium.

The 15 percent drop in Take-Two share price on Monday reflects investors’ skepticism that it is the panacea the company needs.

Take-Two makes most of its money from selling computer and console games. Revenue fell 0.5 percent in the first half as stay-at-home players began to venture again. Competition is tough on free-to-play online gaming platforms like Roblox and Epic Games’ Fortnite.

Mobile games have proven more resilient. Zynga expects revenue to be 40 percent higher year-on-year in 2021.

The acquisition of Zynga could help Take-Two narrow the gap for mobile games against rival EA, the $ 36 billion maker of “Fifa” soccer games. But Zynga has weaknesses. Losses aside, it gets about a fifth of its sales from ads shown on its free-to-play games. Recent changes to Apple’s privacy policy could put pressure on this revenue stream by reducing the company’s ability to personalize ads.

The market’s view of this deal seems to reflect that of the character Trevor GTA, then challenged for more money for a gift: “I said you should get something nice, not something expensive”.

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